Exxaro Resources Limited : REVIEWED CONDENSED GROUP ANNUAL FINANCIAL STATEMENTS AND UNREVIEWED PRODUCTION AND SALES VOLUMES INFORMATION

2013 in brief

• Zero fatalities, record 14 months without fatalities.
• Lost-time injury frequency rate (LTIFR) at 0,19, improvement of 34%.
• Coal production at 38,7Mt, up 3%.
• Coal exports of 4,5Mt, up 15%.
• 4% increase in HEPS to 1 463 cents per share.
• 315 cents final dividend, bringing total dividend to 550 cents per share, up 10%.
• Sale of Zincor refinery in fourth quarter of 2013.
• NCC assets sale agreement signed in January 2014.

Comparability of results
Comments are based on a comparison of the reviewed group condensed annual financial statements as well as unreviewed production and sales volumes information for the years ended 31 December 2013 and 2012, respectively. These results are not comparable due to:

• The net pre-tax impairment of the carrying value of property, plant and equipment at New Clydesdale Colliery (NCC) of R143 million in 2013;
• R98 million partial impairment reversal of the carrying value of property, plant and equipment at Zincor refinery in November 2013 as well as the R964 million profit realised on the subsequent sale of this asset;
• A loss on dilution of the shareholding in Tronox of R12 million in 2013;
• The mineral sands and Rosh Pinah businesses' financial results effectively being included in 2012 annual results for five-and-a-half and five months, respectively;
• The profits realised on the sale of mineral sands and Rosh Pinah businesses of R3 451 million and R544 million, respectively, as well as other non-core assets of R42 million in 2012; and
• The partial impairment reversal of the carrying value of property, plant and equipment at KZN Sands of R103 million in 2012.

Where relevant, comments exclude transactions, which make the results under review not
comparable.

Safety, health, environment and community
Exxaro strives for no fatalities at all its operations. This target was achieved for the first time since the formation of the group when the group recorded no fatalities for the year ended 31 December 2013. A LTIFR of 0,19 was achieved for the year ended 31 December 2013. This was a 34% improvement on 0,29 recorded in 2012. Forty lost-time injuries (LTIs) were incurred in 2013 compared to 66 in 2012, resulting in a 39% improvement. Six operations incurred no LTIs. Exxaro will continue to roll-out safety improvement plans in 2014, which include the Global Mining Industry Risk Management programme, to raise awareness of safety risks.

In 2013, 545 employees enrolled into the HIV/Aids programme compared to 454 in 2012, indicating a 20% improvement in the group's health and hygiene efforts. The number of reported occupational diseases reduced to 89 cases in 2013 compared to 119 cases in 2012. The group implemented an occupational risk exposure profile in 2013 to further reduce incidences of occupational diseases.

Exxaro's wetland strategy is in its final stages of development, with the completion of a detailed wetland study for all business units to mitigate the impact of mining on water resources. This proactive approach to sensitive ecosystems and water resource management is being used internally to guide our growth plans and water stewardship as well as considering the environmental regulatory landscape.

Water is crucial to the sustainability of our business and Exxaro uses a holistic water management programme to manage water-related risks, minimise the potential negative impact of our activities on water resources and operate efficiently through water-reduction plans, re-use and recycling. Group-wide water conservation plans aligned to the national water management strategy are expected to be finalised in the first quarter of 2015.

Two scheduled water treatment plants, at Matla and North Block Complex (NBC), will be delivered in the second and fourth quarters of 2014, respectively.

An important aspect of our business philosophy is to strive to leave a legacy that acknowledges the value of life and to be a powerful source of value and possibilities for communities in which we operate. Exxaro (in collaboration with KPMG) conducted a social return on investment (SROI) assessment of its social and labour plan (SLP) projects.

The SROI is expected to guide future community development initiatives by providing clear means of determining which SLP projects add value to a community. In terms of the group's SLP for the period 2013 to 2017, Exxaro will invest R299 million and collaborate and engage with stakeholders in 63 local economic development projects over the next five years. Most SLP projects are channelled through the Exxaro Chairman's Fund to which all our operations contribute. The total fund contribution to corporate projects and business units' SLP projects was R65 million in 2013 (2012: R50 million), while the actual spend on SLP was R51 million in 2013 compared to R24 million in 2012.

The Leeuwpan mine in Delmas, Mpumalanga, handed over 25 houses valued at nearly R6,5 million to residents of the nearby Botleng community. The houses were built as part of the mine's SLP and in direct response to a need identified in the Victor Khanye Municipality's development plan. The project highlights our commitment to eradicating poverty and economically developing the community where we operate and has impacted positively on approximately 100 beneficiaries. Five local contractors were empowered with skills development when they were appointed to each build five of the 25 houses. These contractors and general workers were mentored on brick-laying and plumbing skills, benefiting a further 15 to 20 community members during the project.

The Klarinet community near eMalahleni, Mpumalanga, benefited from the local economic development bakery project as part of the SLP at Inyanda mine. Exxaro is hoping to replicate the successes of the first bakery project, which was launched in the Mpumalanga town of Belfast in 2012, which has created 15 jobs. Beneficiaries of that project will be training members of the Klarinet community. The Klarinet Bakery has the potential to create at least 25 sustainable job opportunities for the community.

Operational and financial excellence

Group financial results

Revenue and net operating profit
Group consolidated revenue decreased by 16% to R13 568 million, mainly as a result of the exclusion of the mineral sands and Rosh Pinah businesses in the 2013 results. These businesses were sold in 2012 and were included for five-and-a-half and five months, respectively, in the 2012 financial year. This was partially offset by an 11% revenue increase from the coal operations.

Group consolidated net operating profit was R759 million lower at R2 658 million after excluding items noted in the 'comparability of results' section above, mainly as a result of the exclusion of the discontinued operations in the 2013 results. This was partially offset by a 32% increase in coal's net operating profit as well as R157 million lower costs across the group.

Earnings
Attributable earnings, including Exxaro's equity-accounted investment in associates, were R6 217 million or 1 751 cents per share, down 36% from 2012 mainly due to non-recurring profits on the sale of discontinued subsidiaries and other non-core assets in 2012.

Headline earnings, which exclude the impact of the impairment and partial impairment reversal as well as profits realised on the sale of discontinued subsidiaries and other non-core assets, were R5 194 million or 1 463 cents per share, representing a 4% increase on 2012 headline earnings per share. This was mainly due to the 32% increase in the coal business net operating profit.

Cash flow
Cash generated from operations was R2 159 million for the group. This was primarily used to fund net financing charges of R192 million, taxation payments of R158 million and pay dividends of R1 387 million. A total of R4 764 million was spent on acquiring property, plant and equipment (capital expenditure), of which R3 507 million was invested in new capacity (expansion capital), with R1 257 million applied to sustaining and environmental capital. Of the funds spent on new capacity, R1 812 million was for the GMEP and R1 613 million for the Mayoko project.

After the receipt of dividends, primarily from Sishen Iron Ore Company Proprietary Limited (R2 664 million) and Tronox (R507 million), as well as the outflow associated with capital expenditure, the group had a net cash outflow before financing activities of R1 058 million for the year under review. Net debt at 31 December 2013 increased to R3 377 million, reflecting a net debt to equity ratio of 10%.

Coal operational and financial results

Revenue and net operating profit
Coal revenue of R13 362 million was 11% higher than that reported in 2012. This was mainly on higher revenue from commercial mines due to higher export sales and a weaker ZAR/US$ exchange rate (R420 million), partly offset by lower local steam and power station coal sales volumes, albeit at higher prices.

Net operating profit increased by 32% to R2 769 million (at an operating margin of 21%) in 2013 compared to 2012, mainly as a result of higher revenue recorded, higher shortfall income received from Eskom (R1 242 million), higher export volumes (R262 million) and various cost saving initiatives, partly offset by the net pre-tax impairment of NCC (R143 million), inflationary pressures (R484 million), lower sales prices (R271 million) and higher corporate service fee allocated (R236 million).

Further to the previous announcement of terminating production at NCC in the first half of 2013, Exxaro received offers from interested parties on selling this previously impaired operation. Accounting convention requires that such an asset be classified as a non-current asset held-for-sale when certain requirements are met. This has triggered a R149 million partial reversal of the impairment recorded during the first half of 2013, resulting in a net impairment of R143 million for the year ended 31 December 2013.

Production and sales volumes
The coal commodity business's overall production volumes (excluding buy-ins) were 3% (1 155kt) lower than in 2012.

A 15% increase in export volumes was recorded at a realised average export price of US$82/t compared to US$94/t in 2012.

Demand for steam coal in the domestic market improved slightly from 2012, while demand for metallurgical and power station coal decreased, resulting in lower sales.

Metallurgical coal
Grootegeluk's production was 119kt (5%) lower due to a cutback in production as a result of lower rail allocations to Richards Bay Coal Terminal (RBCT) up to the third quarter of 2013 and lower AMSA demand. Tshikondeni's production, however, increased marginally mainly on better yields.

Sales decreased by 111kt (7%) mainly due to lower export volumes (124kt) and lower offtake by AMSA due to production difficulties and maintenance on the rail line to the Waterberg, Tshikondeni sales to AMSA increased by 52kt.

Thermal coal
Power station coal production from the tied mines was 1 263kt (10%) lower than 2012. This was mainly as a result of lower production from Matla and Arnot (815kt and 448kt respectively) following unprotected industrial action in March 2013 as well as difficult geological conditions and management of safety risks at the underground operations.

The commercial mines' power station coal production increased by 373kt (2%) compared to 2012, mainly at Grootegeluk (347kt) due to higher demand from Matimba and the higher demand from the Mpumalanga power stations. Leeuwpan production increased by 75kt on improved yields, while North Block Complex (NBC) production was lower (49kt) in line with the contractual agreement with Eskom. Sales were 672kt higher mainly due to higher demand and availability of stock.

Steam coal production was 198kt (4%) lower mainly due to the NCC mine closure (298kt), the unprotected industrial action at Leeuwpan (115kt) and the longer-than-planned shut of the plant at Leeuwpan. Inyanda production increased (147kt) following higher plant feed and better yields due to geology, while Grootegeluk also increased (68kt) due to improved performance of the GG 4 and GG 5 plants. Domestic steam sales decreased by 176kt (5%) mainly due to lower sales at Leeuwpan after replacing an inland contract with an export contract. Lower sales were recorded at NCC and Inyanda due to the mine closure and prioritising export demand respectively, partly offset by higher sales at Grootegeluk on the back of higher demand. Steam coal export sales were 688kt (22%) higher mainly due to higher exports from most mines as well as higher buy-ins from Mafube.

The ferroalloy market's demand for reductants has recovered significantly since 2012, with Exxaro returning to full production at the semi-coke (previously char) production plant.

The semi-coke plant production was 112% higher mainly due to new markets developed in 2013 against the downturn in the ferrochrome industry in 2012, when production was deliberately reduced to match demand.

Ferrous operational and financial results

Revenue and net operating loss
FerroAlloys increased revenue by 12% to R120 million compared to 2012 due to higher demand from Kumba Iron Ore Limited and a realised average price increase of 6%.

The net operating loss increased to R141 million compared to 2012 mainly due to corporate costs allocated (these were not allocated previously) as well as costs of the furnace refurbishment at AlloyStream.

Production and sales volumes
Changes in the product mix at FerroAlloys in 2013 resulted in an overall decrease in production from 2012. Sales volumes decreased by 4% compared to 2012 as a result of the drop in production.

Equity-accounted investments financial contribution
Overall equity-accounted investment income remained stable. Equity-accounted income from Exxaro's 19,98% shareholding in SIOC increased by 30% largely reflecting an increase in export iron ore prices and a weaker ZAR/US$ exchange rate, partially offset by lower production from Sishen mine.

Exxaro's share in Tronox's profits of 2012 turned into a loss of R638 million for the year ended 31 December 2013, mainly as a result of purchase price accounting adjustments processed in 2013, lower mineral sands and pigment prices in 2013 and a R470 million non-recurring bargain purchase recorded in 2012, partially offset by higher volumes in 2013.

Black Mountain's equity-accounted income declined by 24% mainly due to a 10% reduction in selling prices, coupled with a decline in sales volumes.

Mafube recorded 9% lower profits in 2013 compared to 2012 mainly due to accelerated depreciation of assets and environmental rehabilitation scope changes which resulted in higher costs in the statement of comprehensive income.

Cennergi's two wind projects reached financial close in the second quarter of 2013, resulting in increased once-off legal, consulting and other costs. Salary costs also rose from 2012 to 2013 as these were only incurred for eight months in 2012. Cennergi entered into a number of foreign exchange contracts to hedge future euro payments during the construction phase of renewable energy projects. The fair value adjustment on the ineffective portion of these contracts resulted in additional losses compared to 2012.

Portfolio improvement

Coal capital expenditure and project pipeline
Construction on the Grootegeluk Medupi Expansion Project (GMEP) to supply Eskom's Medupi power station with 14,6 million tonnes per annum (Mtpa) of coal is now 97% complete. The coal supply ramp-up began in 2013, with 1,3Mt produced and 0,9Mt dispatched to Matimba power station after industrial action affected the mine's production in the first quarter of 2013. Further ramp-up and performance testing will be done in the first half of 2014 as per the revised contractual arrangement.

GMEP outstanding mining equipment that was delayed on the back of the revised ramp-up schedule agreed between Exxaro and Eskom is provided for in Phase 3. Total project expenditure to date is R9,3 billion with total capital expenditure forecast at R10,2 billion, including GMEP's portion of the houses and backfill project.

The backfill project has progressed well, with Phase 1 completed in 2013. It is expected to be operational in the first quarter of 2014. Phase 2 is planned to be completed by the end of 2017.

The bankable feasibility study on Thabametsi, a prospective greenfields opencast mine adjacent to Grootegeluk in the Waterberg, Limpopo province, is scheduled to begin in the second quarter of 2014 and to be completed in the first half of 2015. The mining right application process is under way and we anticipate that first coal production will be achieved by 2016/17, depending on the 600MW Waterberg independent power producer and water supply development schedules.

Changing market conditions, delays in availability of feedstock and uncertainty caused by low power availability due to delays in constructing the Medupi and Kusile power stations resulted in numerous changes in implementing our reductants (semi-coke) projects.

By rebranding char as semi-coke and repositioning an improved premium product through value-in-use, demand for semi-coke has increased to exceed Exxaro's current production capacity. This has created the opportunity for expansion of between two and four retorts, depending on availability of feedstock. This expansion is now in prefeasibility study phase after completing a concept study in October 2013. The bankable feasibility study is expected to be completed in the fourth quarter of 2014.

In January 2014, Exxaro concluded the sale of the assets of NCC to Universal Coal, an Australian Stock Exchange-listed junior coal mining company that owns the adjacent Roodekop reserve. Conditions precedent to the transaction include a section 11 approval required in terms of the Mineral and Petroleum Resources Development Act for the transfer of the new-order mining right from Exxaro Coal Mpumalanga Proprietary Limited to the new owners. After extensive consultation with the unions and employees of NCC, a successful section 189 process was concluded in terms of the Labour Relations Act.

Of the 371 NCC employees, 296 have been redeployed in the Exxaro group and 40 were retrenched or retired. Exxaro has subsequently placed the mine on care and maintenance, with 35 people employed for this purpose, until fulfilment of all conditions precedent makes the transaction unconditional and the operation is handed over to the new owners.

The environmental authorisation on the Belfast colliery project, expected to produce both export and power station coal, was received in July 2013 and the mining right was executed in October 2013. The integrated water use licence authorisation is anticipated in the first half of 2014 and the bankable feasibility study is on track for conclusion in the first quarter of 2014, culminating in an investment decision by the end of the first half of 2014.

The 2013 value engineering programme on the Moranbah project, a 50:50 joint venture with Anglo American plc located in the Bowen Basin of Queensland Australia, has been successfully executed.

Ferrous capital expenditure and project pipeline
The exploitation licence for the Mayoko project was issued by the Republic of Congo government during the second half of 2013. The mining convention, Port Autonome de Pointe Noire Memorandum of Understanding as well as the rail framework agreements with Chemin de fer Congo-Océan were signed in Brazzaville on 29 January 2014.

Negotiations will continue during the first quarter to finalise the outstanding commercial terms in order to execute all the necessary agreements. A revised phasing plan and budget for the project will then be presented to the board in order to consider an investment decision. Meanwhile, the development of Phase 1 of the Mayoko project continues to progress as additional exploration has focused on improving the confidence of the banded iron formations at Lekoumou and Mipoundi. Capital expenditure on developing the Mayoko project for 2013 was R1,6 billion, bringing total capital expenditure since acquisition to R2 billion.

A bankable feasibility study for the ferrosilicon expansion project was concluded in 2013. The start of the expansion project has been approved and is scheduled for the first half of 2014, with commissioning of the additional plant expected in the second half.

Following a shutdown of the demonstration facility in the third quarter of 2012, the AlloyStream Letaba project (50:50 JV with Assmang Limited) resumed as planned in 2013, with the second campaign aimed at validating performance and scale-up. This is scheduled for the first quarter of 2014.

Energy capital expenditure and project pipeline
Cennergi, a 50:50 joint venture with Tata Power, continues the project execution phase of both its 134MW Amakhala Emoyeni wind farm (AEWF) project and the 95MW Tsitsikamma Community Development Wind Farm (TCWF) project for which it achieved financial close under window 2 of the Department of Energy's rolling renewable energy independent power producer procurement programme in 2013.

Construction on the AEWF project is due to begin in June 2014 and be completed in the second quarter of 2016, with a commercial operation date planned for the third quarter of 2016. The Cookhouse and Bedford Community Trusts own 5% of the equity of the project. Construction on the TCWF project located on the amaMfengu community land, in the Eastern Cape, which Cennergi is developing with Watt Energy and the Tsitsikamma Development Trust, is due to begin in September 2014 and be completed in the fourth quarter of 2015, with commercial operation date planned for the first quarter of 2016. Cennergi owns 75% of this project while Watt Energy and the trust own 25%.

The agreements between Linc Energy and Exxaro in relation to the development of an underground coal gasification project as a commercial business to develop energy solutions in sub-Saharan Africa became unconditional in November 2013. This was after Exxaro obtained an extension of the prospecting right of an envisaged development site from the Department of Mineral Resources and Exchange Control approval being granted by the South African Reserve Bank for payment of licence fees and royalties for the intellectual property.

Base metals
The previously impaired Zincor refinery was disposed of at the end of November 2013 to Lebonix Proprietary Limited for a total cash consideration of R183 million. This transaction completes the Zincor divestment process, which began when production of zinc metal at Zincor ceased in 2011 and follows on the sale of Rosh Pinah Mine in 2012.

Exxaro continues to retain the 26% investment in Black Mountain and 11,7% in Chifeng.

Recognition and awards
Exxaro received the 2013 Frost & Sullivan Visionary Innovation Award. These awards recognise companies in a variety of regional and global markets for demonstrating outstanding achievement and superior performance in areas such as leadership, technological innovation, customer service and strategic product development. Industry analysts compare market participants and measure performance through in-depth interviews, analysis and extensive secondary research to identify best practices in the industry. This was the second successive year in which Exxaro was recognised.

Exxaro has been certified as a Top Employer South Africa 2013/14 (first in the mining industry) by the Top Employers Institute. This certification confirms the primary and secondary benefits, working conditions, training and career development as well as culture management within the group.

The group's Chief Executive Officer, Sipho Nkosi, received the MS Louw Award for business leadership from the Afrikaanse Handelsinstituut.

The group company secretary, Carina Wessels, was elected president of the Corporate Secretaries International Association, where she will head an executive committee with representatives from the United States, Far East, Africa and Australia. The institution promotes best practices in corporate secretariat, corporate governance and compliance services.

A two-year wage offer tabled by South African coal producers, including Exxaro, was signed in the second half of 2013, after two months of negotiations under the auspices of the Chamber of Mines. This is expected to bring some stability to labour relations during 2014.

Outlook
Despite global economic risks (mainly related to oil prices, United States tapering of quantitative easing and the fragile Euro zone, volatile exchange rates and commodity prices), the global economy still points to a gradual recovery for 2014. The South African economic growth outlook is expected to remain fragile with a weakening exchange rate which will dampen domestic demand and increase inflation. Labour discontent on the back of unresolved socio-economic issues and union rivalry are expected to remain a challenge for the local mining industry.

2014 coal export sales are expected to be affected mostly by commodity price volatility, ZAR/US$ exchange rate fluctuations and the availability of trains from Transnet Freight Rail (TFR). As Exxaro has ceased production at the NCC export mine in 2013, export performance in 2014 will hinge largely on TFR performance between the Waterberg and Richards Bay. Both thermal and coking coal seaborne markets are expected to remain soft given an oversupply of coal globally. Developments on TFR's first-phase expansion of capacity, on the line from Lephalale in the Waterberg, from 4Mtpa to 23Mtpa by 2018 are expected to have a positive long-term impact on Exxaro's bottom line. That expansion is crucial to the group meeting its commitments to Eskom. Given that Mpumalanga coal deposits will have largely been exhausted in the medium term, keeping the Mpumalanga power stations going with coal from the Waterberg has been designated a national development priority.

In the domestic market, demand for steam and metallurgical coal is expected to be stable in 2014. Demand for power station coal from Eskom is, however, expected to be weaker than in 2013 due to the current high level of coal stock-days at Eskom power stations.

Exxaro continues to engage with Eskom following the recent announcement of the delay in the construction of the Medupi power station and the impact this is expected to have on the previously revised volume off-take agreement between the two parties.

The focus on the Mayoko project in 2014 will be mainly on ensuring the successful conclusion of the detailed port and rail agreements. This is expected to be completed in the first half of 2014. It is also expected that the prefeasibility study on Phase 2 will be completed in the fourth quarter of 2014.

Stable off-take is expected in the FerroAlloys business, with full production targeted. Eskom remains a threat to the ferroalloy industry, but has announced that it will not continue with its 'electricity buy-back' scheme and will employ other methods to reduce electricity consumption.

For Exxaro to remain a resilient, long-term, sustainable enterprise, we must continuously shape and adapt our business to external market conditions and geographical locations.

Continued review of costs is expected to assist the group to weather the next few years where cost pressures, subdued global demand and lower available sources of finance are critical for running a value-adding business.

The financial information on which the outlook statement is based has not been reviewed nor reported on by the group's external auditors. These forward-looking statements are based on management's current expectations and subject to uncertainty and changes in circumstances. The forward-looking statements involve risks that may affect the company's operations, markets, products, services and prices. Exxaro undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information or future developments.

Changes to the board
Dr CJ Fauconnier was appointed as independent non-executive director to the board of Exxaro Resources Limited from 1 November 2013. He previously served as the chief executive officer of Kumba Resources Limited and Exxaro from 2001 to 2007. The board welcomes Dr CJ Fauconnier.

Mr U Khumalo resigned as non-executive director effective 31 January 2013. The board expressed its sincere appreciation for his contribution during his tenure.

Final dividend
Notice is given that a gross final cash dividend, number 22 of 315 cents per share, for the 2013 financial year has been declared, payable to shareholders of ordinary shares.

Editor's Note:
Exxaro is one of the largest South African-based diversified resources groups, with interests in the coal, mineral sands, iron ore and energy markets. www.exxaro.com

For enquiries:
Mzila Mthenjane
Executive Head: Strategy and Corporate Affairs
Email: Mzila.Mthenjane@exxaro.com
Tel + 27 12 307 7393
Fax + 27 86 532 5093
Mobile +27 83 41

Annual financial results

Exxaro's annual financial results for the year ended 31 December 2013 will be announced on the JSE's SENS news service at 07:05 on 6 March 2014. They will be presented to investors and media later that day starting at 09:30 in Johannesburg. A live webcast will be available from this website as well as a dial-in teleconference. Click here for teleconference details.